Reform UK’s tax plans disproportionately benefit high earners, analysis shows
Reform UK bills itself as the party “for the left behind” but its flagship tax policy disproportionately benefits those on higher incomes, analysis for Sky News shows.
Nigel Farage hailed the plan to raise the threshold at which workers start paying tax to from £12,571 to £20,000, saying it would lift millions of low-paid workers out of paying tax altogether.
However, Reform’s plan to raise the higher rate threshold from £50,271 to £70,000 would amount to a tax cut worth almost £6,000 for the top 10% of earners, vastly overshadowing the benefit to the lowest earners.
The top 10% of households, by disposable income, have £3,000 a month to spend after housing costs, council tax and direct taxes. A couple in this category would have £5,290 to spend.
These people would gain almost £5,983 in disposable income each year as a result of the changes.
The bottom 10% of households have less than £693 to spend on things such as heating and food each month. The figure rises to £1,195 for a couple. These households would gain an extra £221 per year.
Despite the vast discrepancy, Reform UK has repeatedly framed this as a policy for the lowest paid.
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At the party’s manifesto launch in South Wales, Mr Farage said: “I think the most innovative policy that we’ve put out in here is to raise the level at which people start paying tax to £20,000 a year.
“Why? Well, number one, it would take seven million people out of the tax system altogether, a devilishly complicated tax system. That would be a good thing, of course, for those on low pay.”
When challenged, Mr Farage maintained that people on lower incomes would benefit more than those on higher incomes when the tax cuts were viewed as a proportion of their total salary. However, that is not the case.
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The changes would represent a 2.3% increase in disposable income for those in the bottom 10% and a 6.4% increase for those in the second highest group of earners.
It would cost the public purse about £59bn. The top 10% of households would receive 28p for every £1 spent, while the bottom 10% would receive just 2p.
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Dr Jamie O’Hallaran, senior research fellow at IPPR, the left-wing thinktank that conducted the research, said: “These tax cuts would be both very costly and disproportionately benefit those on the highest incomes.
“At a time when public services and household finances are under such pressure, this would be highly irresponsible. Polls also show this is not what the public want.
“Voters are crying out for public services that work, not tax cuts for the top 10%.”
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The UK economy grew by 0.1% between July and September, according to the Office for National Statistics (ONS).
However, despite the small positive GDP growth recorded in the third quarter, the economy shrank by 0.1% in September, dragging down overall growth for the three month period.
The growth was also slower than what had been expected by experts and a drop from the 0.5% growth between April and June, the ONS said.
Economists polled by Reuters and the Bank of England had forecast an expansion of 0.2%, slowing from the rapid growth seen over the first half of 2024 when the economy was rebounding from last year’s shallow recession.
And the metric that Labour has said it is most focused on – the GDP per capita, or the economic output divided by the number of people in the country – also fell by 0.1%.
Pic: Reuters
Reacting to the figures, Chancellor of the Exchequer Rachel Reeves said: “Am I satisfied with the numbers published today? Of course not. I want growth to be stronger, to come sooner, and also to be felt by families right across the country.”
“It’s why in my Mansion House speech last night, I announced some of the biggest reforms of our pension system in a generation to unlock long term patient capital, up to £80bn to help invest in small businesses and scale up businesses and in the infrastructure needs,” Ms Reeves later told Sky News in an interview.
“We’re four months into this government. There’s a lot more to do to turn around the growth performance of the last decade or so.”
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The sluggish services sector – which makes up the bulk of the British economy – was a particular drag on growth over the past three months. It expanded by 0.1%, cancelling out the 0.8% growth in the construction sector.
The UK’s GDP for the most recent quarter is lower than the 0.7% growth in the US and 0.4% in the Eurozone.
The figures have pushed the UK towards the bottom of the G7 growth table for the third quarter of the year.
It was expected to meet the same 0.2% growth figures reported in Germany and Japan – but fell below that after a slow September.
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The pound remained stable following the news, hovering around $1.267. The FTSE 100, meanwhile, opened the day down by 0.4%.
The Bank of England last week predicted that Ms Reeves’s first budget as chancellor will increase inflation by up to half a percentage point over the next two years, contributing to a slower decline in interest rates than previously thought.
Announcing a widely anticipated 0.25 percentage point cut in the base rate to 4.75%, the Bank’s Monetary Policy Committee (MPC) forecast that inflation will return “sustainably” to its target of 2% in the first half of 2027, a year later than at its last meeting.
The Bank’s quarterly report found Ms Reeves’s £70bn package of tax and borrowing measures will place upward pressure on prices, as well as delivering a three-quarter point increase to GDP next year.
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